Moody’s lowered its financial-strength ratings on CIFG Guaranty, CIFG Europe and CIFG Assurance North America to Ba2 from A1, a 7-notch downgrade, and said the future direction of the ratings is uncertain.

The credit rater said “absent material developments, the firm will fail minimum regulatory capital requirements in New York and Bermuda due to expected significant increases in modeled loss reserves on” asset-backed CDOs. Falling short on capital requirements “would put the firm in a precarious position, especially in light of the solvency provisions embedded in its” credit-default-swap exposures.”

Moody’s said as downgrades of residential mortgage-backed securities have continued this year, “Moody’s believes CIFG will experience sizable increases in reserves, and could breach regulatory capital requirements in the near future.” The company has already failed to meet some regulatory-filing deadlines in the U.S. and Bermuda, including first-quarter results for CIFG Assurance North America and the 2007 annual report for CIFG Guaranty.

Recommendation: CIFG the New Generation in Fallen Angel Financial Guaranty is quite catchy. But more accurate would be, CIFG Our Guaranty Is As Valuable As the Paper’s It’s Written On, Which Paper Is Rated By an Independent Third Party Which Says Our Paper Is Not Very Valuable Even Though It Used To Be.

Come on, don’t be so mean to them. They explained in their comment on Moody’s downgrade that they are really “disappointed by this action, we continue to work aggressively” to protect their policyholders.
Guys – I think they really should have some credibility in the financial community. They have 2.9 bn USD reserves and are located on a Caribbean Island. Why isn’t it good enough for you? As if there is a possibility that in the near future more than one fund with really good assets (e.g. CMOs, CDOs, short-Oil and some non-vanilla fixed-income derivatives) will fail?

Moody’s doesnt actually “do” ratings anymore. That must be a relief for the management at CIFA – they are the companys “most valuable assets” after all.

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